Metropolitan Venture Partners has completed its first private investment in a public entity (PIPE). For $2 million, the New York-based venture firm acquired 93,458 shares of convertible preferred stock in Direct Insite Corp. (Nasdaq SmallCap: DIRI) that will convert into 935,000 shares of common stock at a $2.14 conversion price. As of August 2, Bohemia, N.Y.-based Direct Insite had 3.8 million shares outstanding, and the stock last traded at $2.10 before the deal was announced.
Peter Yunich, managing partner at MetVP, will take a board seat as part of the deal, and he says that Direct Insite Chairman Jim Cannavino, was the catalyst for the deal. Cannavino who was formerly president of Perot Systems and a senior vice president at IBM, “has a clear value of what it takes to create high-value software systems for large corporations,” according to Yunich.
Direct Insite sells several software platforms, including Internet customer care and electronic bill payment platforms; data mapping platforms for telecommunications companies; and other analysis systems. Yunich says MetVP was interested in the investment because of the type of patent-protected technology the company had developed.
According to its most recent quarterly report, Direct Insite generated $2 million in revenue for the quarter ending June 30, but it recorded a net loss of $1.7 million during the same period.
“While the company operates at a loss today, we feel that the momentum of the company provides a reasonable possibility of near-term profitability,” Yunich says.
Yunich insisted that this was not any sort of death-spiral PIPE, saying, “we’re not in the business of putting companies out of business. We’re in the business to create value.” With a market-cap of $8 million, there’s not much room for a death spiral anyway.
Yunich joins a fairly diverse board of directors. In addition to Cannavino, Kansas Attorney General Carla Stovall, Marist College President Dennis Murray, and First Data Resource’s Acting CIO Charles Feld sit on the company’s board.
“The accessibility and involvement of people like Feld and Cannavino and the other was of critical importance to us,” Yunich says.
MetVP made the investment out of Metropolitan Venture Partners II LP. With offices in New York and London, MetVP was founded by the Man Group PLC-a large British hedge fund. MetVP was featured in the September 2002 issue of Venture Capital Journal for its story about its former location across the street from the World Trade Center.
Contact Chuck Fellers